Copyright © Daniel Cullinane CPA.
THE TAX CUTS AND JOBS ACT
While the changes created by the Tax Cuts and Jobs Act of 2017 (TCJA) were nearly economy-wide, the act impacted the regulated utilities industry differently than other sectors.
The specific accounting guidance (ASC 980) for these companies resulted in a unique presentation with key changes to deferred tax liabilities (DTL) and regulatory assets and liabilities, and limited impact on net results.
We surveyed Form 10-K filings from a group of publicly traded companies with significant regulated water operations in order to summarize the reporting impacts and disclosures generic to the industry. Our analysis of the information presented by water utilities in their 2017 Form 10-K reports showed:
As anticipated, all companies reviewed as part of this study presented the impact of the TCJA similarly within the financial statements disclosures for regulatory liabilities and deferred tax assets.
Footing the Bill
The total impact for those companies is $2 billion, representing 35% of their water revenues for calendar year 2017.
Inconsistencies in Disclosures
All filers disclosed additional, and sometimes extensive, information related to the TCJA throughout their Form 10-K filings. We noted that overall there was no consistency in wording or placement of the disclosures, and there was an equally large inconsistency with respect to the extent of the disclosures. Interestingly, we also observed that some filers didn’t report any risks associated with the passing and future impact of the TCJA, and with the exception of one, none of the other filers disclosed risks explicitly related to the TCJA.
Forward Impacts Disclosures
The items disclosed and discussed by filers were focused on the impact as of December 31, 2017, with only one company reporting on effects on their future operating cash flow. In general, we did not see significant disclosures or discussions related to the future impacts of the TCJA on key areas including revenues, cash flows, and financing. We understand that management at these companies has generally used open-ended language in their financial statement disclosures in order to provide for potential changes in estimates or decisions imposed by rate orders and other regulatory decisions.
The information contained in our survey of the Form 10-K filings is meant to summarize the main impacts observed by publicly traded regulated water utilities in their 2017 reporting, with the intention of pulling this data together in one place for quick reference when trying to obtain a general understanding of the TCJA impact on the regulated water industry.
Daniel Cullinane CPA
25 Plaza 5 25th fl Jersey City NJ phone 732-516-1648 fax 732-516-9778
2500 Plaza 5 25th fl Jersey City NJ 07311 phone 732-516-1648 fax 732-516-9778